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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI PRAMOD KUMAR & SHRI SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
The appeal filed by the Revenue is directed against the order dated 28.8.2014 passed by the Ld. CIT(Appeals)-Panaji for the A.Y. 2004-05 and the issues in dispute pertain to deletion of addition of Rs. 44,38,848/- on account of disallowance out of misc. expenses and further deletion of addition of Rs. 57,703/- on account of unutilised MODVAT credit.
The brief facts of the case are that the assessee is engaged in manufacturing of telecommunication equipment and rendering telecom related services. The return of income was filed declaring loss of Rs.1,80,15,614/-. The case of the assessee was selected for scrutiny and the assessment was completed u/s. 143(3) of the I.T. Act at a net loss of Rs. 1,35,03,173/-, after making disallowances of miscellaneous expenses of Rs. 44,38,848/- and on account of unutilised MODVAT credit of Rs. 57,560/- and expenditure pertaining to assessment years amounting to Rs. 15,837/-.
Aggrieved with the assessment order, Assessee approached the Ld. CIT(A), who vide his impugned order dated 28.8.2014 has partly allowed the Assessee’s Appeal by deleting the addition of Rs. 44,38,848/- as well as by deleting the addition of Rs. 57,703/-. Now the Revenue is in appeal before the Tribunal and has raised the following grounds of appeal:-
i) On the facts and in the circumstances of the case, the Ld.
CIT(A) has erred in deleting the addition of Rs. 44,38,848/- on account of disallowance as miscellaneous expenses without appreciating the fact that the assessee had not produced the supporting bills and vouchers for verification during the course of assessment proceedings. ii) On the facts and in the circumstances of the case, the Ld.
CIT(A) has erred in deleting the addition of Rs. 57,703/- on account of the value of unutilised MODVAT credit without appreciating that the same was not included in the value of closing stock as shown on 31.3.2004 and thus, there was deviations from the method of accounting as prescribed under section 145A of the Income Tax Act, 1961. iii) The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
Ld. Sr. DR appearing on behalf of the Department placed extensive reliance on the findings and observations of the Assessing Officer and vehemently argued that Ld. CIT(A) had erred in deleting these two disallowances.
In response, the Ld. AR with respect to disallowance of misc. expenses submitted that the misc. expenses had been disallowed by the AO without duly considering the fact that the expenses were supported by Debit Notes and these expenses pertained to corporate expenses and there was no personal element involved in these expenses. It was further submitted that the assessee is a group company and many expenses are incurred by the Head Office for the entire group and subsequently some of the expenses are allocated to various group entities at a fixed and reasonable basis and debit notes are issued and on this basis these expenses are booked. Ld. AR further submitted that the AO had disallowed the entire expenditure on the ground that the Assessee did not have the vouchers relating to these expenses, but it was incorrect as the debit notes have been issued for the common services on the basis of sales turnover and this method is being followed by the group for the past many assessment years and the Department has also accepted the same.
5.1 With respect to disallowance pertaining to MODVAT credit, it was submitted by the Ld. AR that this amount of Rs. 57,703/- was shown by the Assessee in Schedule No. 5 under the head ‘Loans & Advances’ and appeared as ‘balance with the excise authorities’ and similarly the CENVAT impact on closing stock of raw material and work-in-progress of Rs. 57,703/- was duly reflected in Annexure-II of Form 3CD. It was further submitted that the amount was not income as the assessee was following the exclusive method of accounting of MODVAT credit wherein the purchases are debited net of Modvat Credit to be availed and the Modvat Credit to be availed is debited to separate account. The Ld. AR further submitted that these amounts had rightly been deleted by the Ld. CIT(A) after duly analysing the provisions of Section 145A of the Income Tax Act.
We have heard the rival submissions and perused the material on record. We find that the Ld. CIT(A) while deleting the disallowance of Rs. 44,38,848/- out of misc. expenses has recorded a categorical finding that the amount debited in the books of accounts was duly supported by the debit notes raised by the group company and it has also been noted that the allocation of expenses is Revenue neutral as the expenditure of one company is income of another company. The Ld. CIT(A) has also noted that the claim of such expenditure was much more in earlier assessment years i.e. AY 2001-02, 2002-03 and 2003-04 and these claims had been allowed by the Department. The Ld. CIT(A) has also noted that debit notes are sufficient to establish the veracity of consideration for services received from one group company to another group company. The Ld. CIT(A) has also noted that in spite of the debit notes and details being available for verification, the disallowance of entire expenditure in a summary manner was unsustainable. Ld. Sr. DR also could not point out any factual inaccuracy in the finding of the Ld. CIT(A). Accordingly, we have no other option, but to dismiss the ground raised by the Department in this regard by upholding the action of the Ld. CIT(A).
6.1 Coming to the other ground of the Department relating to deletion of addition of Rs. 57,703/- on account of value of unutilized MODVAT credit. It is again seen that Ld. CIT(A) has duly analyzed the provisions of Section 145A of the Act in this regard and has discussed the issue at length at pages 5 to 14 in his impugned order. The Ld. CIT(A) has also placed reliance on the order of the ITAT, Mumbai Bench in the case of JCIT vs. Alfa Laval (I) Ltd. (2006) 104 TTJ 791 (Mumbai) wherein, it has been held that since the Assessee company had reduced the MODVAT credit in respect of material purchased directly from the material cost, Modvat credit is not to be included in the value of closing stock. Ld. CIT(A) further placed reliance in the cases of National Plastic Industries Ltd. and Gangadhar Oil Refinery (I) Ltd. wherein, it was held that the AO should verify that the assessee does not claim double deduction on account of MODVAT by including the same in opening stock and purchases and also in excise duty payable against sales, which is not the case of the assessee. Ld. CIT(A) has further observed that in view of the accounting system followed by the assessee, if addition has to be made in the closing stock, the cost of manufacturing also needs to be increased and as a result thereof the impact shall be revenue neutral. Therefore, Ld. CIT(A) has rightly deleted the addition amounting to Rs. 57,560/- on this account, which does not need any interference on our part. Therefore, we uphold the action of the Ld. CIT(A) on this issue and dismiss the ground raised by the Revenue.
In the result, the appeal of the revenue stands dismissed.
Order pronounced in the Open Court on 29.08.2018.